Glencore targets $61 billion valuation in IPO

Cornerstone investors will subscribe for 31% of total offer

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LONDON (MarketWatch) — Glencore International AG priced its public offering on Wednesday at a level that implies a valuation of around $61 billion for the commodities trader.

The Swiss company, which plans to list in London and Hong Kong, is targeting its IPO at between 480 pence and 580 pence a share.

Glencore also said it has struck agreements with a group of so-called cornerstone investors that will subscribe for 31% of the total offer. The biggest cornerstone investor is an Abu Dhabi sovereign-wealth fund, which plans to invest a total of $1 billion in the IPO.

Glencore’s targeting total gross proceeds from the offer of $10 billion, assuming no exercise of the over-allotment option. The midpoint of the price range implies a market capitalization of $61 billion after the issuance of new shares in the IPO, the firm said.

“We are pleased by the strong investor interest shown in Glencore’s unique commodity business model,” said Chief Executive Ivan Glasenberg in a statement on Wednesday.

“Today we are able to announce one of the largest cornerstone investor participations ever achieved for an IPO,” he said.

Glencore officially unveiled its plans to become a public company in the middle of April, marking a major development for the firm which is currently owned by its management and employees. Read more on Glencore.

“The price range is what I expected,” said Josef Schuster of IPOX Schuster LLC, a Chicago-based financial-services firm. “It’s probably going to price toward the lower end [of the range].”

In the long term, Glencore offers diversification opportunities for investors who want exposure to commodities, he said. “In the short term, Glencore will be trading with the market, and the commodity stocks have shown increasing volatility, especially to the downside,” Schuster added.

Abu Dhabi fund — a cornerstone investor

Abu Dhabi’s Aabar Investments confirmed on Wednesday an investment of $850 million in Glencore as a cornerstone investor. Aabar also said it plans to invest an additional $150 million in the global offer.

“Given Aabar’s focus on value enhancing investments and the great opportunity that global commodities offer, we intend to explore in due course areas of co-operation between the two firms,” said Aabar Chief Executive Mohamed Al-Husseiny in a statement.

Aabar’s largest stakeholder is the International Petroleum Investment Company, which is wholly owned by the government of the Emirate of Abu Dhabi.

Meanwhile, reports say that Government of Singapore Investment Corp. is another cornerstone investor with plans to commit $400 million in the IPO.

Glencore said it expects to announce the final pricing of its IPO around May 19, with conditional dealings in the shares on the London Stock Exchange beginning the same day.

Admission and unconditional dealings in the shares is expected to start around May 24 in London and May 25 in Hong Kong.

“It’s a broad range for an IPO. I am not sure how much it tells us,” said John Meyer, an analyst at investment bank Fairfax I.S. PLC. He added that the range likely reflects the current uncertainty in global markets.

Glencore “are going to ensure that this is a successful issue,” Meyer said.

Cornerstone investors are particularly important in order to demonstrate that the IPO is backed by long-term holders, he noted.

“They [cornerstone investors] give other investors confidence that a number of major and high-profile investors have done their due diligence and added their names to this deal,” Meyer said.

Since its founding in 1974, Swiss-based Glencore has grown into a commodities trading behemoth with operations spanning the globe. The firm produces, sources, markets and distributes a wide range of commodities — from aluminum, nickel and copper to crude oil and coal but also grains, cotton and sugar. It owns interests in numerous public companies, including a 34% stake in miner and FTSE 100 index component Xstrata PLC (XTA).

“Given that investors are buying into an exceptional business that has a dominant position in many of the world’s key traded commodity markets, then investors should look for the valuation of this business to go to a premium,” Meyer said. “This is the modern-day equivalent of the East India Trading Company. Nobody else has been able to rival them.”

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